1、Liana MohamadFA1Simple AdjustmentTopic3Liana MohamadFA11234567891011121234Annual12MonthlyQuarterlySemiannualThe Accounting PeriodJanFebMarAprMayJunJulAug SepOctNovDecLiana MohamadFA1Accrual Basis vs.Cash Basis 权责发生制和收付实现制Accrual BasisRevenues are recognized when earned and expenses are recognized wh
2、en incurred.Cash BasisRevenues are recognized when cash is received and expenses recorded when cash is paid.Liana MohamadFA1Cash BasisOn the cash basis the entire$2,400 would be recognized as insurance expense in 2004.No insurance expense from this policy would be recognized in 2005 or 2006,periods
3、covered by the policy.Liana MohamadFA1Accrual Basis On the accrual basis$100 of insurance expense is recognized in 2004,$1,200 in 2005,and$1,100 in 2006.The expense is matched with the periods benefited by the insurance coverage.Liana MohamadFA1We have delivered theproduct to our customer,so I think
4、 we should recordthe revenue earned.Recognizing Revenues and ExpensesRevenue RecognitionLiana MohamadFA1Recognizing Revenues and Expenses Revenue Recognition MatchingSummaryof ExpensesRentGasolineAdvertisingSalariesUtilitiesand.$1,0005002,0003,000450.Now that we haverecognized the revenue,lets see w
5、hat expenseswe incurred togenerate that revenue.Liana MohamadFA1Adjustments An adjusting entry is recorded to bring an asset or liability account balance to its proper amount.Adjusting AccountsPaid(or received)cash before expense(or revenue)recognizedPaid(or received)cash after expense(or revenue)re
6、cognizedPrepaid(Deferred)expenses*Unearned(Deferred)revenuesAccruedexpenseAccruedrevenuesFramework for Adjustments*including depreciationLiana MohamadFA1Here is the checkfor my first6 months rent.Adjusting Prepaid(Deferred)ExpensesResources paid for prior to receiving the actual benefits.AssetExpens
7、eUnadjustedBalanceCreditAdjustmentDebitAdjustmentLiana MohamadFA1Prepaid InsuranceOn December 1,2004,Scott Company paid$12,000 to cover rent for December 2004 through May 2005.Scott recorded the expenditure as Prepaid Insurance on December 1.What adjustment is required?637128Liana MohamadFA1Supplies
8、During 2004,Scott Company purchase$15,500 of supplies.Scott recorded the expenditures as Supplies.At December 31,a count of the supplies indicated$2,655 on hand.What adjustment is required?126652Liana MohamadFA1Decline in asset value over its useful life Use2.Allocate cost to periods benefited.3.Acc
9、ount for subsequent expenditures.Disposal 4.Record disposalAdjusting for Depreciation Acquisition1.Compute cost.Liana MohamadFA1AcquisitionCostAcquisition cost excludes financing charges andcash discounts.All expenditures needed to prepare the asset for its intended usePurchasepriceCost Determinatio
10、nLiana MohamadFA1Land is not depreciable.PurchasepriceReal estatecommissionsTitle insurance premiumsDelinquenttaxesSurveyingfeesTitle search and transfer feesLandLiana MohamadFA1Cost of purchase or constructionBrokeragefeesTaxesTitle feesAttorney feesBuildingsLiana MohamadFA1PurchasepriceInstalling,
11、assembling,andtestingInsurance whilein transitTaxesTransportationchargesMachinery and EquipmentLiana MohamadFA1Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.CostAllocationAcquisitionCost(Unused)Balance Sheet(Used)Inco
12、me StatementExpenseDepreciationLiana MohamadFA1The calculation of depreciation requires three amounts for each asset:Cost.Salvage Value.Useful Life.Factors in Computing DepreciationLiana MohamadFA1 Straight-line Units-of-production Declining balanceDepreciation MethodsLiana MohamadFA1On January 1,20
13、04,equipment was purchased for$50,000 cash.The equipment has an estimated useful life of 5 years and an estimated residual value of$5,000.Cost -Salvage ValueUseful life in periods DepreciationExpense for Period=Straight-Line MethodLiana MohamadFA1Straight-Line MethodCost -Salvage ValueUseful life in
14、 periods DepreciationExpense for Period=$9,000 DepreciationExpense per Year=$50,000-$5,0005 years=Liana MohamadFA1Salvage ValueStraight-Line MethodDepreciationRate=(100%5 years)=20%per yearLiana MohamadFA1Step 2:Depreciation Expense=DepreciationPer UnitNumber of Units Producedin the PeriodUnits-of-P
15、roduction MethodDepreciationPer Unit=Cost -Salvage Value Total Units of ProductionStep 1:Liana MohamadFA1 On December 31,2001,equipment was purchased for$50,000 cash.The equipment is expected to produce 100,000 units during its useful life and has an estimated salvage value of$5,000.If 22,000 units
16、were produced in 2002,what is the amount of depreciation expense?Units-of-Production MethodLiana MohamadFA1Step 2:Depreciation Expense=$.45 per unit 22,000 units =$9,900Step 1:DepreciationPer Unit=$50,000 -$5,000 100,000 units=$.45 per unitUnits-of-Production MethodLiana MohamadFA1No depreciation ex
17、pense if the equipment is idle.Units-of-Production MethodLiana MohamadFA1DepreciationRepairExpenseExpenseEarly YearsHighLowLater YearsLowHighFixed percentage for depreciation is deducted from the cost in the first year.The following year,the same percentage is taken of the reduced balance.Depreciati
18、on is reducing over the number of years of use.Declining Balance MethodLiana MohamadFA1Declining Balance MethodReducing Balance depreciation:Formula:Net Book Value x Depreciation rate(Cost-Accumulated Depreciation)x Depreciation rateLiana MohamadFA12004 Depreciation:40%$50,000 =$20,000 Declining-Bal
19、ance Method2005 Depreciation:40%($50,000-$20,000)=$12,000 Eg:For the first year 2004,Equipment costing RM50,000,The depreciation rate is 40%on book value.Liana MohamadFA1Declining-Balance MethodLiana MohamadFA1Life in YearsAnnual DDBDepreciation$0$5,000$10,000$15,000$20,00012345Comparing Depreciatio
20、n MethodsAnnual ProductionDepreciationLife in YearsLife in YearsAnnual SLDepreciationLiana MohamadFA1Adjusting for DepreciationOn January 1,2004,Barton,Inc.purchased equipment for$62,000 cash.The equipment has an estimated useful life of 5 years and Barton expects to sell the equipment at the end of
21、 its life for$2,000 cash.Lets record depreciation expense for the year ended December 31,2004.2004DepreciationExpense=$62,000 -$2,000 5=$12,000Liana MohamadFA1Adjusting for DepreciationOn January 1,2004,Barton,Inc.purchased equipment for$62,000 cash.The equipment has an estimated useful life of 5 ye
22、ars and Barton expects to sell the equipment at the end of its life for$2,000 cash.Lets record depreciation expense for the year ended December 31,2004.Accumulated depreciation isa contra asset account.Liana MohamadFA1EquipmentDepreciation Expense1/1 62,00012/31 12,000Accumulated Depreciation12/31 1
23、2,000Adjusting for DepreciationLiana MohamadFA1Adjusting for DepreciationEquipment is shown net of accumulated depreciation.$Liana MohamadFA1Buy your season tickets forall home basketball games NOW!Adjusting Unearned(Deferred)RevenuesCash received in advance of providing products or services.Liabili
24、tyRevenueUnadjustedBalanceCreditAdjustmentDebitAdjustmentLiana MohamadFA1Adjusting Unearned(Deferred)RevenuesOn October 1,2004,Ox University sold 1,000 season tickets to its 20 home basketball games for$100 each.Ox University makes the following entry:Liana MohamadFA1Adjusting Unearned(Deferred)Reve
25、nuesOn December 31,Ox University has played 10 of its regular home games,winning 2 and losing 8.Liana MohamadFA1Were about one-halfdone with this job andwant to be paid forour work!Costs incurred in a period that areboth unpaid and unrecorded.Adjusting for Accrued ExpensesExpenseLiabilityCreditAdjus
26、tmentDebitAdjustmentLiana MohamadFA11/12/0431/12/04Year endLast paydate26/12/04Next paydate2/1/05Record adjustingjournal entry.Adjusting for Accrued ExpensesBarton,Inc.pays its employees every Friday.Year-end,31/12/04,falls on a Wednesday.As of 31/12/04,the employees have earned salaries of$47,250 f
27、or Monday through Wednesday of the week ended 02/01/05.Liana MohamadFA1Adjusting for Accrued ExpensesBarton,Inc.pays its employees every Friday.Year-end,12/31/04,falls on a Wednesday.As of 12/31/04,the employees have earned salaries of$47,250 for Monday through Wednesday of the week ended 1/02/05.Li
28、ana MohamadFA1Yes,Ive completed yourtax return,but have not hadtime to bill you yet.Adjusting Accrued RevenuesRevenues earned in a period that are both unrecorded and not yet received.AssetRevenueCreditAdjustmentDebitAdjustmentLiana MohamadFA1Adjusting for Accrued RevenuesSmith&Jones,CPAs,had$31,200
29、 of work completed but not yet billed to clients.Lets make the adjusting entry necessary on December 31,2004,the end of the companys fiscal year.Liana MohamadFA1Links to Financial StatementsLiana MohamadFA1Bad DebtsBad debts Debtor refused to pay the invoices Debtor refused to pay part of the invoic
30、es Debtors business has failed and may settle part of the debt.Debtors business has failed and unlikely to settle the total debt.Provision for doubtful debts An Account showing the expected amounts of debtors at the balance sheet date who will not be able to pay their accountBad debts recovered Debt
31、s written off in previous years to be recovered Reinstate of debts Liana MohamadFA1On August 4,Barton determines it cannot collect$350 from Martin,Inc.,a credit customer.Bad Debts:Direct Write-Off MethodLiana MohamadFA1After the write-off,Martin decides to pay$200.Bad Debts:Direct Write-Off MethodLi
32、ana MohamadFA1Bad Debts:Allowance MethodAt the end of its first year of operations,Barton Co.estimates that$3,000 of it accounts receivable will prove uncollectible.The total accounts receivable balance at December 31,2004,is$278,000.Contra asset accountLiana MohamadFA1Bad Debts:Allowance MethodAt t
33、he end of its first year of operations,Barton Co.estimates that$3,000 of it accounts receivable will prove uncollectible.The total accounts receivable balance at December 31,2004,is$278,000.Liana MohamadFA1Bad Debts:Allowance MethodAt the end of its first year of operations,Barton Co.estimates that$
34、3,000 of it accounts receivable will prove uncollectible.The total accounts receivable balance at December 31,2004,is$278,000.Liana MohamadFA1Two Methods 1.Percent of Sales Method 2.Accounts Receivable MethodslPercent of Accounts ReceivablelAging of Accounts Receivable MethodEstimating Bad Debts Exp
35、enseLiana MohamadFA1Bad debts expense is computed as follows:Percent of Sales MethodLiana MohamadFA1Barton has credit sales of$1,400,000 in 2004.Management estimates 0.5%of credit sales will eventually prove uncollectible.What is Bad Debts Expense for 2004?Percent of Sales MethodLiana MohamadFA1Bart
36、ons accountant computes estimated Bad Debts Expense of$7,000.Percent of Sales MethodLiana MohamadFA1 Compute the estimate of the Allowance for Doubtful Accounts.Bad Debts Expense is computed as:Percent of Accounts Receivable MethodLiana MohamadFA1Barton has$100,000 in accounts receivable and a$900 c
37、redit balance in Allowance for Doubtful Accounts on December 31,2004.Past experience suggests that 4%of receivables are uncollectible.What is Bartons Bad Debts Expense for 2004?Percent of Accounts ReceivableLiana MohamadFA1Desired balance in Allowance for Doubtful Accounts.Percent of Accounts Receiv
38、ableLiana MohamadFA1 Year-end Accounts Receivable is broken down into age classifications.Compute a separate allowance for each age grouping.Aging of Accounts Receivable Method Each age grouping has a different likelihood of being uncollectible.Liana MohamadFA1 Aging of Accounts Receivable Liana Moh
39、amadFA1Bartons unadjusted balance in the allowance account is$900.We estimated the proper balance to be$5,320.Aging of Accounts ReceivableLiana MohamadFA1With the allowance method,when an account is determined to be uncollectible,the debit goes to Allowance for Doubtful Accounts.Writing Off a Bad DebtBarton determines that Martins$300 account is uncollectible.Liana MohamadFA1Subsequent collections on accounts written-off require that the original write-off entry be reversed before the cash collection is recorded.Recovery of a Bad Debt
